“The pandemic has really highlighted the resilience and ability of the best entrepreneurs”
When the virus first arrived, we were incredibly concerned. Our company SFC Capital has a portfolio of about 200 companies; and so, March and April were worrying months. Were investors going to stop investing? Would our company survive? But it soon became clear that the problems were going to be focused on certain sectors, namely travel and hospitality, while big opportunities were opening up for companies involved in other businesses, such as delivery and remote working. Some of our portfolio companies had a very tough time; but some thrived, and a dozen or so witnessed their revenues shoot through the roof – including a flower delivery business, a company that makes kits to upgrade pushbikes to electric, and a sustainable packaging company that transitioned to producing recyclable PPE. Before the virus, they were supplying paper straws to McDonald’s, so their story is a good example of innovation. The pandemic has really highlighted the resilience and ability of the best entrepreneurs. So far, we have not lost a company, some have flourished, while others have hunkered down and waited.
Good entrepreneurs can pretty much survive a nuclear war – they will be able to pivot, transition, rally their team, adapt. They are people-centric, which is hugely important. When we assess companies to invest in, we always look at how the CEOs and leaders interact with their employees, how they behave together in the bunker, so to speak. Are they all pushing in the same direction? The virus has stoked a kind of war-time spirit and the best entrepreneurs are making sure their companies are coming out the other side stronger.
As an early stage investor, at SFC Capital we use a marking matrix to guide us, 50% of which scrutinizes the CEO, leaders, co-founders, and team of each company. How do they come across; how do they behave? Have they got their finger on the pulse? If there is only one founder, they are really up against it from day one; it’s a negative in many ways, but we certainly do not exclude them. Sole founders need to be seriously good for us to invest in them. We are looking for that real spark. We do psychometric testing, we have lots of discussions with them, we see how they respond to our questions on due diligence, and we do a deep dive on each company. If we do decide to invest, later when we are considering whether to reinvest, we re-evaluate them, check their resilience and perseverance, have they built a good team? These are important factors to consider.
“Good entrepreneurs can pretty much survive a nuclear war – they will be able to pivot, transition, rally their team, adapt”
“The virus has stoked a kind of war-time spirit and the best entrepreneurs are making sure their companies are coming out the other side stronger”
Quite often, we are presented with a brilliant idea but the team is lacking. I would rather have a great team with an average idea than an average team with a great idea. A great team will forge something even during the toughest times. One of SFC capital’s first investments was an identity verification company called Onfido. When we invested, they had no revenue, the product wasn’t really there, but the team was so exceptional that we knew it was going to be something special. The company is now worth more than £350 million. It is all about the people.
Remarkably, during the pandemic, valuations have not gone down. People generally tend to overvalue their businesses – how can a company with zero revenue, that is three months old, be worth £2 million? We see crazy valuations like this all the time. I do believe that the pandemic is potentially a good thing for entrepreneurship. We are going to see a lot of people out of work when the furlough scheme in the UK comes to an end. There should be no shortage of startups. The UK is a very entrepreneurial country; but it also probably means we will see some people who should not be entrepreneurs trying their luck coming to the market and demanding corporate salaries.
For budding entrepreneurs in the times of Covid, and even generally, I would advise:
Ø If you don’t have a co-founder, get one. It is extremely difficult going it alone. If you find someone who is compatible with your vision it takes a great deal of pressure off.
Ø Take time to work out a detailed plan and don’t rush things. Be clear when you talk to your potential investors – don’t assume they know anything. Investors tend to be generalists, so you need to be clear.
Ø Don’t overvalue your company. High valuations can destroy companies for so many reasons, not least because it will take so long to source enough investment that you run the risk of someone stealing your idea in the meantime.